Final answer:
The three-variance analysis method is the variance analysis that requires identifying actual variable and fixed costs, as well as budgeted rates and costs, to understand spending, efficiency, and volume variances.
Step-by-step explanation:
The method of variance analysis that requires a company to identify the actual variable and fixed costs as well as budgeted rates and costs is c. The three-variance analysis method. This method looks at the variances between the standard costs for the actual production volume and the actual costs. It considers the variances related to spending (price/rate variance), efficiency (quantity variance), and the volume difference between actual and budgeted output.
Understanding the breakdown of total costs into fixed cost, marginal cost, average total cost, and average variable cost provides a firm with essential insights that can shape financial decision-making. The dissection of these costs helps in setting the budgeted rates and costs effectively. This type of granular analysis is critical to understanding the cost dynamics of a business and in performing comprehensive variance analysis.